Fundrise Launches First Ever eREIT

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Well Fundrise.com is leading the industry again with their highly anticipate “new product” which just launched today. Fundrise announced the newest investment vehicle which they have dubbed the eREIT.  Being that this investment is a REIT any investor is allowed to participate even if they are not accredited. The invest is basically a commercial real estate REIT which offers more liquidity (limited on a quarterly basis) , higher projected returns and lower fees than traded and non-traded REITs. The minimum investment is for $1000 and they plan to offer quarterly distributions.

Here are some of the highlights:

Investment Strategy

eREIT uses technology to reduce the costs of operating a traditional real estate investment fund by up to 90%. This increase in efficiency allows us to focus on a greater number of smaller transactions, a segment of the market underserved by large institutional investors. By capitalizing on this market inefficiency, the eREIT is able to seek superior risk-adjusted returns for investors.

What are the costs associated with investing?

You pay $0 in quarterly asset management fees unless you earn a 15% annualized return during the first two years (ending December 31, 2017). Once a 15% annualized return has been reached, investors pay a quarterly asset management fee of 1% per year. This description of the fees associated with the Fundrise eREIT is qualified in its entirety by the disclosure contained in the Management Compensation section of the Offering Circular.

So what is the catch? First of all in order to invest you need to have already signed up and been on the waiting list a few days before the launch. That means if you create and account now you won’t be able to invest yet. How long will it take until they will be able to allow more investors nobody really knows but I would assume not everyone that was on the list will actually invest which means within the month the investment could still be opened to other investors.

The question is what does this offer that a regular REIT doesn’t? Fundrise is projecting higher overall returns than any traditional REIT but that is just a projection and remains to be seen. Fundrise is a technology leader in the field and they hope to leverage this to cut operating costs and exploit inefficiencies that other traditional REITs may face.

Crowdtrader plans to test this with our own intial investment and we will share our results with all of our readers.

Find out more about Fundrise and write a review here. 

Q&A With Fundrise co-Founder and COO Brandon Jenkins

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We sat down and asked Brandon Jenkins, COO and co-founder of real-estate crowdfunding Fundrise.com to share with our readers some of the history and developments within Fundrise.com.

Hi Brandon, thanks for taking the time to share your thoughts with us.

CrowdTrader: Can you tell us about how Fundrise began and how you joined the team?

Brandon: The idea behind Fundrise came out of the personal experience of the founders as real estate developers in Washington, DC who recognized an opportunity to open up the world of real estate investing to a broader audience.

I joined when we were still doing our own real estate development projects – when Fundrise was just an idea starting to emerge.

CT: Fundrise has a bunch of unique features which is why I personally love the site, but how would you differentiate Fundrise from the other platforms out there?

BJ: First and foremost quality. We only work with the best quality real estate companies and search through hundreds of deals a week selecting only the top 1% to actually offer as investments.

Second, we focus on providing unmatched customer experience by creating a one-of-a-kind platform. Our technology is 100% designed and built in house…from scratch, so that the experience of investing on the platform is as straightforward and enjoyable as possible.

CT: The huge amounts of VC funding your company has raised is well known, where are you focusing most of this spending?

BJ: We are very diligent about how we spend. We want to know that we are getting a great return on our investment, so we focus our resources on creating the best products with the greatest long-term value.

CT: Since you are also in charge of product development, can you share with us any cutting edge product roll outs or features we can expect to see on Fundrise.com in the near future?

BJ: I can’t give away any specifics but we are working on a few big things that will be complete game changers for the crowdfunding industry…as big as the first day we launched.

CT: Do you have any plans to start issuing offers under Regulation A+ for non-accredited investors?

BJ: Our core business has always been and will be to provide the best quality investments to everyone – whether that is through Reg A+ or other offering structures we are constantly working to deliver on that goal.

CT: Fundrise.com is pioneering the prefunding model which definitely helps protect investors, but doesn’t this have a negative impact on the number of deals you can bring to market as well as the overall returns that investors will receive?

BJ: No, we are big believers in “putting your money where your mouth is” and prefunding every deal is evidence of the level of quality for each investment we offer. It also allows our investors to earn better returns because we are able to negotiate the best terms possible by having certainty of
capital.

Platforms operating under a “best-efforts” model have inherent uncertainty which puts them at a disadvantage when negotiating terms and this is passed along to their investors in the form of lower quality deals and a poorer risk adjusted return.

Refusing to lower our quality standards may result in us doing less deals in the short term, but we believe that our investors will benefit over the long run…and we are long-term in our thinking.

CT: Fundrise.com recently launched an income and growth portfolio which packages together a number of assets, this is starting to resemble a REIT how is this different?

BJ: It’s similar in that investors are able to diversify across multiple assets and we like that. Diversification is critical when it comes to smart investing.

It’s different in that investors get more transparency into what they are investing in and have much lower fees. Lower fees means better returns for investors.

CT: Currently Fundrise is only offering the two portfolio options for investment does this represent a fundamental change in your offering strategy? Will we still be seeing single offerings listed on Fundrise for investments?

BJ: We continue to develop ways for our investors to diversify across more deals at lower minimums – diversification leads to better performance and is something we have seen our investors consistently ask for.

CT: Where do you see the real estate crowdfunding industry in general in the next three years and Fundrise in particular?

BJ: One of our favorite quotes at Fundrise is from Bill Gates, who said “Most people overestimate what they can do in one year, and underestimate what they can do in ten” – crowdfunding is still in its earliest stage. Only in the last year have we truly started to compete and beat out traditional
institutional capital players to get deals done.

Over the long term, technology will disrupt the financial industry just like it did with book stores, travel agents, and taxi cabs – it’s simply more efficient to raise capital online with fewer middlemen each trying to get a cut of the action.

In the near term, you will start to see consolidation. The advent of crowdfunding has not gotten rid of normal business cycles and only when the downturn comes will you find out who was doing things right and who’s out of business.

CT: From a sponsor’s perspective, why should they choose Fundrise to raise capital?

BJ: The best real estate companies want to work with the best partners, ones that have a real depth of track record and experience in the real estate industry. They also want to get the best terms possible.

Because of the unique way in which we raise capital we can provide real estate companies with both the speed and efficiency of private funds and a cost of capital similar to the public markets -in short they work with us because we can provide them with the best deal.

 

Thanks Brandon, we will keep an eye out for new developments from Fundrise.com as I am sure the entire industry will too : )

 

 

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Brandon is the Chief Operating Officer of Fundrise, the country’s first online platform for real estate investment. Brandon works with the design and technical teams to set the strategic direction for the software platform. Before joining Fundrise, Brandon worked as an investment broker and advisor at Marcus & Millichap, the largest real estate investment brokerage firm in the country. Prior to his time in brokerage, he worked for Westfield Shopping Centers in the Regional Development Office.

 

Fundrise Wikipedia

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Fundrise is an American real estate crowdfunding platform.[3] It facilitates transactions from individuals, allowing them to invest in real estate projects with initial investments starting at $100 and up to $10 million. It has been labeled as the first company to successfully crowdfund investment into the real estate market.[4]

Can Jeff Bezos & Amazon Send Interest Rates to Zero?

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fundrise-amazon-graph
In chaos theory, the butterfly effect shows us how small events can create large unexpected changes later. The name comes from the idea that something as small as the flap of a butterfly’s wings could lead to a hurricane on the other side of the world.

Entrepreneurs, engineers, and tech junkies dream about the change they might create within a given system. Direct changes might include making books available for the first time online (i.e. Amazon), democratizing investing by lowering minimums and fees, or enabling friends to split the check at dinner without any cash exchanging hands.

The larger question is, what nonlinear butterfly effect does each of these technological innovations have? By making books available online did Jeff Bezos merely enable us to receive hard copies in the mail? Or did Amazon begin other ripple effects, such as the creation of the modern financial system?

Innovation = Change in Cost / Value

It seems clear in hindsight that Bezos made large strides for all future e-commerce sites in helping individuals feel comfortable with making purchases online, while changing the lifestyle of an entire generation once shackled to cars and brick-and-mortar retail.

These direct effects are easy to trace. The indirect ripple effects might not be so easy.

Trailblazers, and those around them, often cannot foresee the subsequent, nonlinear effects of certain actions. Is it possible that the ability to feel comfortable transacting online might lead to secular changes in interest rates forever and a complete overhaul of the financial system as we know it?

Paul Gebhart thinks so. His recent piece on “The End of Interest Rates” runs counter to the more popular narrative today that capital is seeing increasingly stronger returns as technology reduces headcount and labor costs.

Gebhart argues that return on capital will take a secular plunge to zero (and stay there) due to the persistence of technological disruption by online financial technology companies. This convergence to zero, Gebhart writes, will be the result of an abundance of capital enabled by technological progress.

As technology reduces the cost to start a business, excess capital is freed up to be deployed elsewhere.

Moreover, with technological innovation comes more efficient means of investing which lowers overhead costs and thus fees. With a disproportionate amount of capital chasing a finite number of passive investments, rates of return will shrink.

One could argue that this is already being demonstrated in today’s low interest rate environment. While it was common to earn in the high teens up to twenty-something percent in the 1980s, the past several years have shown investors struggling to earn even mid-single digit returns.

If the prevailing narratives are right, it certainly hasn’t yet been demonstrated for passive investors on a broad scale.

If Gebhart is onto something, will it mean the end of passive income. And, can we blame Bezos?

If it is the beginning of zero returns, that could certainly mean chaos.

Top Image Source: Wesley Fryer, Flickr

Progress vs. Return on Capital image source: Paul Gebhardt, Medium

 

Source: Kendall Davis Fundrise.com